The market continues to heat up the "Trump trade," with the dollar reaching a one-year high

Zhitong Finance learned that as the market continues to speculate on Trump's trade policies, the US dollar continues to strengthen. On Monday, the dollar rose, reaching its highest level in a year. The Bloomberg Dollar Spot Index rose 0.7% on Monday, hitting its highest level since November 2023, as traders bet that Trump's trade policies would boost the dollar and suppress major currencies, including the euro. The yen was the worst-performing currency among developed countries on Monday. The dollar index narrowed its gains to 0.5% by the end of trading on Monday.

On Monday, the dollar rose 0.70% against the yen, trading at 153.71 yen, remaining in a state of continuous upward fluctuation throughout the day. The euro fell 0.60% against the dollar, trading at 1.0654, while the pound fell 0.40% against the dollar, trading at 1.2870. The dollar rose 0.55% against the Swiss franc, trading at 0.8805.

The dollar was also boosted by the Federal Reserve. Following a 50 basis point rate cut in September last year, the Fed lowered the benchmark interest rate by 25 basis points last week, but did not provide clear guidance on the timing and pace of further rate cuts. As data showed robust economic growth in the US, the dollar continued to rise after six consecutive weeks of gains. Meanwhile, slowing economic expansion in other parts of the world is prompting major central banks to lower borrowing costs, putting pressure on local currencies.

Data released by the Commodity Futures Trading Commission (CFTC) on Friday showed that as of the week ending November 5, hedge funds, asset management companies, and other investors held about $17.6 billion in bullish dollar positions. This positioning marks a reversal from the negative outlook seen before the mid-October elections.

Paresh Upadhyaya, head of fixed income and currency strategy at Amundi US Inc., stated, "Several factors support the dollar in the foreseeable future, and the market is finally starting to take tariff risks and their importance to global and domestic growth and inflation prospects more seriously."

Jane Foley, head of foreign exchange strategy at Rabobank, stated that Trump's election will impact the euro and the Fed's rate-cutting cycle. She said, "The European Central Bank has taken a more dovish path, and we believe that due to the inflationary impulses of Trump's policies, the Fed's easing cycle will be shortened." Foley stated that the euro to US dollar exchange rate could fall to 1.05 in the next three months. The euro to US dollar dropped 0.6% on Monday, to 1 euro equals 1.0657 US dollars, prompting investors to consider the possibility of the euro to US dollar falling to parity.

It seems that American Republicans are about to gain control of both the House of Representatives and the Senate, which will enable them to pave the way for Trump's planned tax cuts, immigration, and trade policies, as well as his nominations. In a report led by Meera Chandan, JP Morgan strategists wrote, "The election results amplify the exceptionalism of the dollar. No other currency has what the dollar possesses: superior economic growth and stock market performance, higher yields, and defensive attributes."